Spring2014movemag web image Page 2 Image 0006

May 2014

A Taxing Solution to Infrastructure Funding

With the impending depletion of the Highway Trust Fund, Washington looks for other ways to fund transportation initiatives.

Business tax reform and transportation infrastructure funding—two seemingly unrelated subjects—have formed an unanticipated alliance in the midst of the impending insolvency of the Highway Trust Fund (HTF). Separate proposals to transform the tax code—from the White House Administration and Capitol Hill—were introduced within days of each other this past winter, both leveraging the revenue from tax modifications to fill the gap in the HTF. That increased revenue theoretically would be used to fund surface transportation projects after the demise of MAP-21 funding.

This solution was first evidenced in President Barack Obama’s budget proposal for fiscal year 2015; the other was detailed in a legislative draft plan to modify the tax code from House Ways and Means Committee Chairman Dave Camp (R-Mich.). Despite the likelihood that either of these two proposals would see movement, these distinct plans suggest federal lawmakers are keen on finding a resolution to diminishing transportation funding through innovative financing.

Proposed funding solutions

President Obama submitted his budget proposal to Congress on March 4, requesting $3.9 trillion for fiscal year 2015—a $56 billion increase over fiscal year 2014. Of the total, the president proposed $302 billion in infrastructure spending over the next four years to offset the HTF insolvency and extend the current surface transportation authorization. The surface reauthorization proposal sought to support infrastructure projects, offer employment opportunities during a sluggish economy, boost private investment in infrastructure and modernize the federal permitting process. The $302 billion would have allocated the corresponding amounts to the following agencies within the Department of Transportation:

  • Federal Highway Administration – $199 billion
  • Federal Transit Administration – $72 billion
  • Federal Motor Carrier Safety Administration – $3 billion
  • National Highway Traffic Safety Administration – $4 billion
  • Federal Railroad Administration – $19 billion
  • Office of the Secretary – $5 billion

According to “The Budget Message of the President,” the plan to fund infrastructure projects would include “using the transition revenue … from a shift to a simpler, more efficient tax code.” Other than a slight mention of the potential of closing loopholes, the plan did not specify how exactly it would work. However, the budget proposal totaled the expected generated revenue to approximately $150 billion.

Obama’s plan would have ended reliance on the 18.4 cent-per-gallon federal excise tax on gas, substituting direct funding from the General Fund as well. The current two-year highway bill is set to expire Nov. 1, 2014, and the HTF is expected to run short of cash in the middle of summer. Peter M. Rogoff, the Department of Transportation’s acting under secretary for policy, said in a March hearing to the House Transportation and Infrastructure Highways and Transit Subcommittee that the agency will need to curb road and bridge and other public transportation projects when their balances fall below certain levels beginning in July.

The release of the president’s 2015 budget proposal came only a week after Chairman Camp announced his plan to modify the tax code, which would dedicate $126.5 billion to fund highway and infrastructure investments. The “Tax Reform Act of 2014” draft legislation seeks to lower tax rates and simplify the tax code, and contains components such as flattening the code by reducing tax rates and forming two brackets of 10 and 25 percent for almost all taxpayers, decreasing the corporate tax rate to 25 percent, providing a higher standard deduction, and increasing the child tax credit, along with other sweeping changes. The revenue generated from the reforms would dedicate $126.5 billion to the HTF to fully fund highway and infrastructure investment expenditures for eight years.

Additional solutions needed

As lofty as these proposals were, a negligible chance existed that they would receive any traction—even before they were released publicly. Bipartisanship has made it virtually impossible for any discussion of tax reform to be taken seriously among lawmakers, especially given that the upcoming mid-term elections make both sides wary of making any core changes that might jeopardize their own or a fellow party member’s chances of re-election. Obama’s plan was too opaque to detail any particulars, and Camp’s draft was criticized even by members of his own party’s leadership.

While the notion of tax reform may be dead-on-arrival this legislative season, a number of larger factors figure into what the future holds for reauthorization and financing for the HTF before it bottoms out. The budget passed by Congress in December set the top-line amounts for departments in fiscal year 2015, obscuring the outlook for the creation of budget resolutions.

Recurring themes in hearings over the subject include calls to increase the gasoline tax and the longevity of future reauthorizations. Some lawmakers continue to press for an increase in the gas tax to pay for the HTF and scoff at the idea of other financing solutions. Meanwhile, the question of long-term versus short-term authorizations has yet to be sorted out. With all of these variables involved in the computation, the question of how infrastructure projects will be financed after Nov. 1 surely will be answered with a multi-faceted approach.

Given all the hindrances to Obama’s budget proposal and Camp’s reform bill, both pointed brightly to visions that capture the growing recognition of the immediate HTF insolvency. They suggest the necessity for innovative, viable funding solutions and longer-term plans for reauthorizations than those of the past. Camp’s tax proposal also deserves attention because it is one of the most fully laid-out and comprehensive plans that has been offered in legislative form in recent years. Constructed with input from numerous budgetary experts, the tax-draft plan is a tangible, detailed reference guide that can serve as the basis for future proposals, and individual elements can be utilized for the revenue generating provisions in unrelated legislative proposals.